Links 2023-11-14 - Globalization
People and things coming into our world
Three links to share today all within the theme of globalism—a single world with many, many moving parts.
Let’s begin with the great Don Boudreaux tearing down the popular accounts of so-called trade deficits. As he likes to say, a slice:
If this month we Americans import more goods and services than we export – that is, if we run a so-called “trade deficit” – one conclusion commonly drawn by people who are poorly informed about international commerce is that the difference between the value of what we export and the value of what we import must be “financed” either by foreigners extending credit to Americans or by Americans disgorging assets to foreigners. If this common conclusion were correct, then US trade deficits would indeed reduce the net worth of Americans as a group. With every month of trade deficits we Americans would either go further into debt to non-Americans or the value of the assets that we own would fall. Either way, our net worth would decline.
Fortunately, this common conclusion is spectacularly incorrect. America started in 1976 what will be at the end of 2023 an uninterrupted 48-year run of annual trade deficits. 1976 is the year that I graduated from high school, and 2023 is the year that I reach the traditional retirement age of 65. So for my entire, long adult life America has run trade deficits. If US trade deficits really do reduce Americans’ net worth, we would by now be a nation of paupers. Yet we aren’t. Not remotely.
For example, the real net worth of nonfinancial corporate businesses in the US is today 354 percent higher than it was in 1975, the last year the US did not run a trade deficit.
Next let’s take a peek at the new project recently launched by the Cato Institute, Defending Globalization. The excellent Scott Lincicome explains the aim of the project in this short video.
Finally let’s circle back to Don Boudreaux as he sheds much light on another related mythology—that American cannot absorb immigrants as well as it could in the past. Note the fact that immigration is a key component in a globalized world. Again, a slice is in order:
Let’s look at some other goods and services that might be relevant for assessing America’s current ability to “absorb” immigrants compared to its ability to “absorb” immigrants just before quotas were imposed.
Petroleum In 1920 America had 7.5 billion barrels of proved reserves; today (2023) America has 68.8 billion barrels. On a per-capita basis, for every American in 1920 there were 71 barrels of proved petroleum reserves, while in 2023 the number of proved reserves per American is 202.
Teachers in primary and secondary schools In 1920 America had 1 teacher for every 32 pupils; today America has 1 teacher for approximately every 15.5 students.
Physicians In 1920 the number of physicians practicing in America was 144,977, or one physician for every 731 Americans. The number of physicians practicing in America today is 1,077,115, or one physician for every 316 Americans.
Dentists. In 1920 the number of dentists practicing in America was 52,152, or one dentist for every 1,888 Americans. The number of dentists practicing in America today is 202,536, or one dentist for every 1,679 Americans.
Police officers In 1920 there were 82,120 police officers in the US, or one police officer for every 1,291 Americans. Today (2021) there are 660,288 police officers in the US, or one police officer for every 515 Americans.
Firefighters In 1920 there were 50,771 firefighters in the US, or one firefighter for every 2,088 Americans. Today (2020) there are 1,041,200 firefighters in the US, or one firefighter for every 327 Americans.
Capital per worker Perhaps most importantly for those people who worry about America’s ability to “absorb” immigrants is capital per worker. The reason is that real wages are determined by worker productivity, and worker productivity is chiefly determined by the amount of capital workers work with. I can find no good data for 1920, but in 1950 America’s total stock of (non-human) capital was (in 2017 dollars) $10.6 trillion and the size of the labor force was 62.2 million. The amount of capital per worker was then, on average, $169,806. (It was surely lower in 1920.) Today (2019) America’s total stock of (non-human) capital (in 2017 dollars) is $69.1 trillion and the size of the labor force is 167.8 million. The amount of capital per worker is today, on average, $411,460. On average, the American worker today works with 142 percent more capital than did his or her counterpart in 1950.
This estimate – and here I speculate – of the growth of capital per worker is almost certainly low, enormously so. Not only does it exclude human capital, it likely undercounts improvements in the quality of capital goods. Strong evidence that this estimate of the growth of capital per worker is too low is that, in 2023 dollars, the average hourly manufacturing wage in the US in 1920 was $8.27; today this wage is $32.61 (not counting fringe benefits). This substantial real-wage growth suggests that over the past century the amount of capital per manufacturing worker at least quadrupled. Because real per-capita income in the US today is more than eight times its level of a century ago, it’s likely that the amount of capital per worker in the service sector (where most Americans work) has much more than quadrupled.
These increases in capacities were stunning to me—and I study this stuff! What should also be stunning is that more immigrants increase both the supply and demand functions meaning that more people will lead to more output with certainty and in ways that compound positively.
When we turn our backs to globalization, we turn away from a remarkably better world.